Thoughts from Dave Mead and discussion about issues and concerns for Small and Mid-size Businesses. Some discussion topics will include strategic planning and execution, improving profitability and cash flow, maximizing value for exit.

Monday, May 12, 2014

[Editor's note:
This eLetter was first published a couple of years ago. It received
such positive response that we decided to update it and run it again
-DPM]

Common misconceptions about selling a business

It
appears that we may be entering the next big surge in business
transition activity fueled by the retirement needs of aging baby
boomers. The first baby boomers turned 67 years of age in 2012 and we
are beginning to enter the years with greatest numbers of boomers. It
was estimated that in 2012, based on slow activity in 2008-2011, there
were between 1.2 -1.5 Million boomers (with businesses between $2M and
$80M in revenue) who would need to sell to provide liquidity for
retirement. That number will continue to grow each year.

If
you are a business owner contemplating a sale somewhere in your
future, consider these common misconceptions about selling your
business.

·I know the buyer - they are in my industry. Many
business owners think they already know the prospective buyers - from
their industry. However, in many cases where a sales process is
conducted by an investment banker, an "outlier" (either a strategic or
financial buyer) surfaces with an offer significantly higher than from
those you may know. Many times these come from outside your industry.

·The market will be better next year. Procrastination
can cost you. Sellers in 1999 or 2007 will tell you that they wished
they had sold while the market was hot. In 2014 and 2015 there are more
buyers than sellers - this won't continue with the aging demographics of
business owners.

·I don't want to sell until I have to (Dismal D's).You
want to sell when your business is healthy and when you don't have to
sell. Life can take cruel twists and turns. Business owners without a
plan can find themselves subject to the "Dismal D's" - Death,
Disability, Divorce, Dissenting Owners, Declining market, Debt overload,
or just pure burnout. It is hard work to sell your business. You'll
need plenty of energy and motivation to maintain performance during the
sales process.

·The investment banker or M and A firm will build value or help create my business strategy.
No they won't - that's not their job! A good investment banker can
help you yield value, attract a broader market of potential buyers and
get a deal closed, but they don't have the skills or background to
build value.

Danger
point: Some small M and A firms will offer free or low cost strategic
or operational services and advice in order to get your sales
transactional business, but these are either young, inexperienced associates or people who have not really run
a business like yours. They may be very good at selling your business,
but what they don't know can hurt you. If an investment banker is
offering to help you with your business strategy, you should question
why. Stick to investment bankers that stick to their core competency -
selling a business.

·My lawyer (or CPA) (or Wealth Manager) will help me find a buyer. Finding a buyer is very different than finding the best buyer,
the right buyer. Investment bankers do this every day. Most
professionals understand what they do well....and what they don't. Find
the right tool for the job!

·I met a guy in my CEO peer group /My investors know a banking firm.Selling
your business may be your most important business decision. Get help
in making an informed decision about selecting an investment banker or
other professionals such as accountants, tax counsel, and transaction
attorneys. Learn about possible (but undisclosed) conflicts of interest,
differences between firms, level of expertise that will work on your
company, etc. Have you checked with previous clients that were both
successful and unsuccessful? Mead Consulting clients use a checklist of
questions to help make the appropriate choice.

·It only takes 6-12 months to exit a business.Nothing
could be further from the truth. In order to realize the maximum value
it may take you 1-2 years to prepare the business, 12 months to do the
transaction, and then you may have to remain for 3 more years with the
company after the sale. Rushing a company to market without proper
preparation will cost you as buyers will discount values for companies
without an adequate strategic growth plan, strong management, or a clean
review of due diligence issues.

·Selling will only take some of my time.The
biggest mistake business owners can make is to allow business
performance to slip during a sales process. The primary reason for deals
to either fall apart - or become heavily discounted - is because of
deterioration of revenue and earnings. Business owners can dramatically
underestimate the amount of time and energy it will take to both sell
the business and maintain performance during the process.

The Mead Consulting Group helps
business owners navigate through a successful sales process, including
preparation (value creation), selection of the right team (investment
bankers, transaction attorneys, tax counsel, etc.), and the sale
process itself. We focus on maximizing value
and leverage the business owner's and management's time so that they
can focus on maintaining business performance. Contact us for more
information.

________________________________________

The
Mead Consulting Group has helped over 50 clients prepare for successful
sales transactions ranging from $15M to $350M in transaction value. We
help companies increase the value of their businesses leading up to a
transaction, minimize the things that cause potential buyers to discount
the price, prepare to best position the company, and assist the owners
in building a transaction team.

What successful business owners say about us:

...We
could not have completed the sale of our business without the advice
and guidance of The Mead Consulting Group. Their experience was critical
in helping us prepare, and endure, the transaction process to a
successful outcome. ...Charles M, President, Healthcare IT Company

A
successful process is draining and stressful. The Mead Consulting
Group brought the experience and expertise necessary to help our team
focus on the critical issues and not get caught up in the multitude of
items that can derail a transaction. Why reinvent the wheel? We chose
to take advantage of individuals who could help us understand the
nuances, negotiate effectively, and close the deal. ... Ken W, CEO, Behavioral Healthcare

...We
missed the opportunity to sell our family business during the last
upcycle. Mead Consulting helped us grow revenue and EBITDA to record
levels and guided us through the selection of a transaction team. Dave
Mead and his group provided great counsel throughout the sales process,
removing obstacles and firmly encouraging us to a great deal with a
strategic buyer that mirrored our family business values. ...Dan M, President, Building Products Company

...I
do not know why anyone would attempt to sell their business without
Mead Consulting. Since they have owned and sold their own businesses,
they understand the challenges of continuing to run the business while
trying to sell it. Their experience kept us focused on the right things
and they helped keep our transaction team well-aligned during the
process. They truly act as the advocate for the CEO and owner, helping
to make sure that it was the best deal for the owner. ...Ron T, CEO, Software Business

Welcome to Mead's Issues for Growth

Since 1991, we have been publishing a periodic eLetter "Issues for Growth" that contains articles or thoughts of interest to business owners looking to grow and improve their businesses. We invite your comments and discussion.

About Me

We have been consulting with small and mid-size businesses for over 30 years, helping companies move to the "next level of success" by focusing on strategies that the company can execute well and aligning all activities within the company to those key strategies.
I have started and run 7 companies - a couple of great successes, a few moderate successes, a couple of screaming failures.